Levelling the playing field

The last issue of Housing Today reported sympathetically the problems facing councils whose housing revenue account budgets will be trimmed as a result of rent restructuring. The article said the policy has forced councils into stock transfer.

In truth, the councils whose budgets are most affected by the rent restructuring regime have had the benefit, under the old council rent regime, of a long-running anomaly that gave them an unfair advantage over other councils.

Yes, the new rent and subsidy regime has faults, but it will produce a situation much closer to a level playing field between one local authority and another.

Rules limiting the levels of council rent increases that are eligible for housing benefit subsidy were introduced in the 1996/97 financial year.

However, those rules applied with the same rigour regardless of whether the individual council's rents at that time were above or below the level of the subsidy guidelines. Thus they set in stone, over the years, different subsidy limits for councils based on their 1996 rent levels.

Where the old system went wrong
Authorities that had rents above the subsidy guidelines in 1996 were left with a financial advantage over authorities with rents at or below guideline levels. In some cases that advantage was quite modest. In others it was very substantial.

Not many councils can convincingly run the argument that their higher rents simply reflected the desire of council tenants for better services. In 1996/97 English councils collectively used £542m from tenants' rents to fund capital investment on major improvements.

On average rents were £5.40 above the subsidy guideline level for the year (£34.70 per week). But all too often the councils charging the highest rents were also the councils that systematically chose to apply housing capital receipts to fund other council services, leaving the tenants to pick up the tab for any expenditures that could not be met either through credit approvals or within subsidy guidelines.

Despite the rent increase subsidy limitation, by 2001/02 English council rents were on average some £7 above the subsidy guideline levels. In fact, while scores of councils had rents close to the guidelines, others had rents more than £15 a week above the guidelines. Redbridge, in Greater London, had rents £18.30 per week above guideline levels, for instance. Hillingdon, in west London, had rents £17.50 higher than guidline levels, Westminster £15.90, and Woking, in Surrey, £15.60.

Changing the emphasis
The new rent and subsidy regime for councils makes a number of changes.

The councils that are most affected by rent restructuring had, under the old regime, the benefit of a long-running anomaly which gave them an unfair advantage

For a start, it places less emphasis on property values. Under the old system rent guidelines were based 50% on earnings and 50% on capital values, while the new system's guidelines are based 80% on earnings and just 20% on capital values.

Councils are cushioned against the changes in the subsidy guidelines themselves but they will lose the housing benefit support for rent levels above the subsidy guidelines – subject to phasing over 10 years.

So, one outcome of the new system is that councils will be treated far more even-handedly than under the old system. The constraints of management and maintenance allowances and the degrees of local discretion available will eventually apply the same way to all authorities.

Management and maintenance allowances were increased in 2002/03 by an additional 3.4% specifically to compensate for the impact of the first year of rent restructuring. Mind you, all authorities benefit from those increases, while rent restructuring hits harder on the authorities that benefited from the anomalies of the old regime.

In cash terms those additional allowances have an average value of some 75p per dwelling per week, which is broadly 10% of the difference between 2001/02 average rents and subsidy guidelines.

Compensation where it's due
So in broad terms the increases in allowances this year do effectively compensate for the loss of above-guideline rental income under the new regime. However, similar levels of above-inflation increases in management and maintenance allowances will be needed year-on-year during the next nine years to compensate for the working-through of rent restructuring. At the end of that, the council subsidy regime will be far more

even-handed in the degree of support it gives to different councils.

There are still problems with the overall level of resources available to councils to enable them to meet the decent homes standard. For many councils there are also continuing financial pressures that make stock transfer the most favourable option – rent restructuring and related subsidy reforms are not in themselves a conspiracy to force councils into stock transfer.